Fed: banks ease up on credit limits
card issuers have become like bartenders at a wedding, dispensing credit more
liberally to invited guests, but not throwing the doors open to just anyone,
said a Fed report issued Monday.
Banks reported a considerable easing of credit limits for
new and existing card customers in the second quarter of 2013, although they
continued to keep a tight grip on issuing new cards, according to the Federal
Reserve's quarterly survey of senior loan officers.
Nearly 20 percent of banks said they "eased
somewhat" their credit limits for new or existing credit card accounts,
while only 2 percent said they "tightened somewhat." Most banks -- about three-quarters of them --
said credit limits were "basically unchanged."
"One way to expand (lending) is to expand credit to the
customers you already know -- the risk of doing so is less than other things
you could do," said James Chessen, chief economist with the American
The willingness to expand credit limits might be a precursor
to more lenience in granting credit cards, as the economy improves and lending
in general gets less risky, he said.
The Fed surveyed 73 domestic banks in July about their
lending standards and demand for loans during the previous three months. The
quarterly senior loan officer survey has tracked a glacial loosening of
standards for credit card borrowers since the big chill following the financial
crisis in 2008.
In July, banks indicated that they remain mostly wary about issuing
new cards, the survey found, continuing the very gradual warming. Only 5.5
percent said they "eased somewhat" standards for approving new card
applications, while 1.8 "tightened somewhat." Nearly 93 percent said they "remained
Banks were a little more generous when it came to interest
rates. About 4 percent said they "eased somewhat" their interest
rates in relation to their cost of funds, and 2 percent claimed they
Banks reported being mostly unchanged about the minimum
required credit score or the percent of balance required to be repaid monthly.
Demand for plastic is also mixed, the quarterly survey
found. Although 16 percent of bankers said card demand that they see from
customers was "moderately stronger," another 8 percent characterized
demand as "moderately weaker."
The banks' stern stance toward card lending contrasts with
other forms of consumer credit. For auto loans, 15.6 percent said their credit
standards "eased somewhat," extending a string of quarters that saw
the bar get lower for car loans.
While banks are getting more comfortable with some forms of
consumer credit, "it's going to take some time to get there in the
unsecured world," said Scott Hoyt, senior director of consumer analytics
at Moody's Economy.com. Collateral makes
underwriting auto loans less risky.
When will access to cards get easier?
"It's hard to say," said Hoyt. "Lenders are
still trying to figure out what they can do under the new regulatory
environment." The Credit Card Act of 2009 and subsequent consumer financial regulation have heightened banks' uncertainty,
putting a damper on their willingness to open new accounts, he said.
As for home loans, 10 percent of banks said that their
credit standards for prime, home-purchase mortgages eased somewhat in the
quarter, while 3 percent said they tightened.
A quarter of banks said standards for subprime mortgages "tightened
considerably," and the rest said standards were unchanged.
Fed: Banks modestly lower barriers to credit cards
Published: August 5, 2013